Frog Cellsat Ltd. (FCL) is a technology innovator and manufacturer of radio frequency (RF) equipment for various applications like mobile networks, IoTs, etc. It was incorporated as a private comopany in 2004 and went public in 2022. It was listed briefly between 2014 and 2018 but was delisted due to bad business performance on account of having only 1 product in its portfolio (repeaters). Company designs, manufactures, sells and also provides services for installation of following products:
- RF repeaters which enhance mobile signal coverage
- Active DAS (Distributed Antenna system) provides wireless coverage in large structures like airports metro stations, stadiums, etc.
- Antennas for mobile n/ws (operators), including base stationand small cell antennas. Used at mobile towers.
- Network accessories such as RF jumpers, connectors and filters that integrate mobile cell sites
- IBS (in-building solutions) accessories that improve in-building mobile signal coverage
- Optical DAS which delivers wireless coverage in large areas
- Customized RF solutions
- 5G base station antennas
- Interference mitigation system to improve signal quality
- VHF DAS for railway communication
- 5G fixed wireless access (FWA), wireless technology for high speed internt to homes and businesses without cables
- ONT (Optical n/w terminal) connects customer’s home or office to fibre optic n/w for high speed internet and other services
FCL has recently moved to a new 1.6 lakh sq. ft. facility in Noida. It has customers like all major telecom operators- Airtel, Ji, Vodafone Idea, as well as companies like Indus towers, Ericsson, ITI, Motorola, etc. Due to it also being a part of infra projects like airports, metro stations, it has customers like L&T.
It operates with subsidiaries - Frog tele pvt. ltd., Frog services pvt. ltd., GORF UK Ltd., Shiva profiles
Thesis for investment:
Industries served by FCL is experiencing multiple tailwinds as follows:
- Telecom industry is undergoing 5G rollouts, 4G infra enhancement, increased data consumption, rural market expansion, network upgrade capex by telecom operators, growing mobile subscriber base, govt. policy support including ‘make in india’, public safety netwrok expansion
- Infra industry with upcoming airports and metro stations, railway network expansion requiring VHF communication systems
- Defense industry (though FCL admits it is a slow decision process) due to self-reliance India initiative, large defence budget allocation, priortization of national security. There are RF based products that FCL can use for upgrades of tanks, aircrafts, etc. as well as for new defence products
Telecom industry is key from national security standpoint. Hence, ‘make in india’ and national ‘trusted source’ certification is critical. FCL being only India based significant player has an advantage due to it comapred to foreign entities which are main suppliers till date. Hence, it has focus on developing import subsitutes with price competitive, field proven, future ready and dependable products & services.
FCL has CRISIL SME 1 grading in 2023 as well as recognized as ‘Greatv place to work’
FCL’s balance sheet is strong and hece has necessary strength for future growth capex. Return on assets is 9.03 which is very good. FCL also has hired a lot of employees in recent times anticipating good future growth.
FCL has strong product portfolio of 27products including propreitary DAS which ensures its ability to provide end-to-end solutions. It continuously innovates new products/upgrades through its strong R&D facility recognized by Dept. of science and industrial research and GoI.
Except for its CEO and CS moving out with short tenure, its remaining key management team is with FCL for more than a decade.
While a low margin business, FCL intends to enter into contract electronic manufacuring for other OEMs. For this it has already started SMT line for PCB manufacturing.
While there are multiple opportunities in India, FCL has a great opportunity to increase its exports. Government also has similar ambitions for being low cost producer for the world. UK subsidiary has been reinstated with that intent while manufactruing would be from India.
Wiith 4 airports (Lucknow, Noida, Mumbai and Navi Mumbai) and 1 Bangalore metro projects already executed, it would be a good opprotunity with 200 airports (exlcluding old ones which will come for upgrade) and metros coming up across India.
There are also other business avenues being explored like smart repeaters for smart meters, smart minibooster for IoT applications defence, etc.
FCL mgmt. has very limited related party transactions, no legal cases, no contingent liability which is good. Couple of amber flags in forensic accoutning are low CFO to PAT ratio due to high debtor and inventory days, no provisions for bad debts though no write-offs have happened over last 2 financial years.
Antithesis pointers:
FCL order book is steadily increasing. Being order book based business keep track of it for any decline in its order book
FCL is targeting 500 cr INR revenues by FY28 and EBIDTA margins of 10%. In past had missed gudiances. Reasons given were delay in projects by customer like 5G rollout.
Industry has continual technological developments. Hence, critical to ensure good R&D investments are made for product innovations.
FCL’s future business prospects arte closely tied with telecom indutry and govt. investements. Hence, continual operator and govt. CAPEX is crtiical for its growth.
It is a competitive market more specifically with foreign companies’ ability in the future to supply products adhering to govertnment regulations of ‘trusted source’
Customer concentraion is high due to nature of market it operates in. Keep watch on how FCL diversifies its business and loss of any customer.
Disclosure: studying and planning to invest in the future. Views invited.